According to a report recently published by Moody’s Investors Service, securitization is an essential source of core funding for the real economy, particularly in the private label mortgage market. Moody’s states, “The correlation between the overall level of debt in the US economy and the percentage of that debt financed by private-label securitization suggest that when the country’s borrowing needs rise, securitization provides the required incremental funding.” Moody’s notes, however, that this correlation also suggests that when borrowing needs decline, this market is among the first to contract.

According to Moody’s, “Data dating back to the birth of the US securitization industry shows that private-label securitization’s contribution to the funding of the US economy rises and falls along with the level of debt outstanding.” PLS is becoming significant again in some asset classes as US outstanding debt is now growing again. While the PLS market has grown at a rate similar to that of outstanding debt in sectors including credit cards, mortgage and leveraged loans, Moody’s highlights the auto loan and commercial mortgage sectors, where PLS has increased more quickly than debt outstanding.